SAP Clings To A Dated Cloud Apps Strategy

Back in the early days of cloud-based applications, they were seen exclusively as an alternative for small and midsized companies. But the cloud ceiling has been broken, and now even SAP admits that the cloud appeals to even the largest companies in the world.

Has SAP truly seen the light and will it now lead the cloud revolution? Unfortunately there are signs it's still clinging to the belief that core ERP will forever remain on premises.

SAP co-CEO Bill McDermott was in New York last week to lead an "SME Summit" at its office in the city to explore the challenges of starting and growing small and midsize businesses.

He was there to tout SAP's cloud applications as an ideal technology foundation for businesses that all too often "fail to scale," as he put it, but the event was a contrast with a broader industry trend that is seeing cloud apps moving up into the largest companies.

There's no doubt that small businesses are hugely important to the economy. They're the source of two out of three net new jobs -- a point that was constantly highlighted during the recent elections. Some of these businesses will become the giants of tomorrow. Apple, Google and Microsoft were all once small, entrepreneurial businesses. SAP itself was launched 40 years ago by five former IBM employees, and today it employs 65,000 people.

Small and midsized businesses are the base of the customer pyramid for the IT industry, but about a decade ago SAP realized it was too focused on the top of the pyramid. So in 2002 it purchased TopManage Financial Systems and rebranded its product SAP BusinessOne. The server-based app suite included financials, purchasing, production, HR, inventory, and sales, and SAP later added CRM functionality and added embedded analytics supporting all of the apps.

Aimed at small businesses, BusinessOne is still available as a server-based product, starting at around 1,000 Euros ($1,300), but the latest wrinkle is that the suite is now available in the cloud running on SAP's Hana in-memory database. Cloud delivery makes it faster, easier deployment than the on-premises approach at low initial cost of $42 to $86 per user, per month. Running on Hana ensures fast, real-time performance, according to SAP.

SAP's next, cloud-based step up is Business ByDesign, which is ostensibly aimed at midsize enterprises, but here's where "cloud is for SMBs" argument has started breaking down. We've all heard about how cloud-based applications are leveling the playing field. Cloud makes the latest, greatest technology affordable and accessible to small firms on tight budgets and with meager IT staffs, and it also makes it far easier than the on-premises approach to quickly scale up.

All that is still true, but the real story over the past two years has been breaking of the cloud ceiling, with companies like Salesforce.com, NetSuite and Workday landing some of the largest businesses in the world as customers.

Take Workday, for example, which now has a pot of money to expand sales, marketing and R&D after a highly successful October IPO that raised $685 million. During an earnings call with financial analysts on Wednesday, Workday co-founder and CEO Aneel Bhusri said Workday's Human Capital Management apps are already capable of handling the largest companies in the world, like Hewlett-Packard and DuPont, both of which recently signed enterprisewide deals with the company.

Workday's financial apps are currently suitable for use by midsized companies, Bhusri said, but by the end of next year -- after investments in cloud capacity and app resiliency to sustain high-scale transaction processing -- they'll be ready for Fortune 1,000- or even Fortune 500-sized companies, he said.

Good article, Doug, but I would ask by which yard stick are you evaluating their cloud strategy? Within the ERP category, SAP's main competitor is Oracle who I think has been even slower to embrace the cloud. Within the BI segment, SAP or more specifically BusinessObjects was early to the cloud. for the next couple of years, Gartner was estimating that cloud will only account for 3 % of BI total market share, which suggests that demand in this segment for cloud is not as strong as say in the HR, payroll, or sales force segments. In that regard, I think there is still the debate of when does cloud make sense and when is on-premise better. Regards,Cindi Howsonwww.biscorecard.com

I've heard loud and clear from SAP that they think my headline and blurb up top are misleading (and harsh). The Twittersphere, too, has seen comments from third parties saying as much. The nuance that doesn't come through until page 2 is that what I view as dated is SAP insistance that "the core" will remain on premises at large corporations. My point is that that's breaking down, and SAP will inevitably have to back peddle unless it addresses this question/long-term roadmap before the market does so. A good start would be defining what is "core" and then reexamining the progress of each piece into the cloud. What will be there in 2015? What will be there in 2020? I was among the first to refute Larry's "SAP's got nothing in the cloud but SuccessFactors until 2020" Tweet, but customers will increasingly want to see elements of the core moving into the cloud. -- Doug Henschen

THe vast majority of big enterprises aren't going to rip and replace legacy systems with cloud services, but the point here is that SAP should lead the way, not be dragged, into delivering "the core" in the cloud. -- Doug Henschen

Some good points here. There used to be this sort of gentlemen's agreement that small and medium companies were good candidates for the cloud, but big companies needed on premise horsepower. This model is seriously breaking down as big companies are mobile, dispersed and great cloud candidates. Can't power a big company via the cloud? Tell that to Amazon.

Software as a service is the clear No. 1 way enterprises consume cloud. InformationWeek's SaaS Innovation Survey reveals three tips to get the most from SaaS: Make it a popularity contest. Have an escape plan. And remember that identity is the new perimeter.